Social Security: The importance of 66

Jeffrey B. Miller is Professor of Economics Emeritus at the University of
Delaware. He earned his doctorate from the University of Pennsylvania in 1976
and taught at the University of Delaware for 36 years. In
2009 he co-founded Social
Security Choices, a firm that specializes in providing customized
information to assist people in formulating their best strategies for claiming
Social Security benefits. Dr Miller worked at Social Security after graduating
from college.
JMiller@socialsecuritychoices.com

When you open your Social Security statement and look at your personal benefits, you will you see what your benefits will be if you claim at 62, 66, and 70.

The statement will be somewhat different if you were not born between 1945 and 1953 or you are older than 62.

62 is the earliest age you can claim. 70 is the latest age you should claim because benefits do not increase after 70. What about 66?

Social Security calls 66 your full retirement age. Many of your benefits, if you claim at other ages, are determined relative to your benefits at full retirement age. Full retirement age has also become a focal point for people when they think about retirement or claiming their Social Security benefits.

Recently the full retirement age has risen from 65 to 66 years. In response, people have changed their claiming behavior. In 2002 roughly 25% of all claimants claimed at age 65 and very few claimed at 66. Today roughly 24% claim at 66 and fewer people claim at 65, according to the Annual Statistical Supplement to the SS Bulletin.

Are people making the right choice? The answer depends on whether they are single, married or divorced.

For most single people, claiming benefits at 66 is not the best strategy. Even though the full retirement benefit is declared to be 66, there is actually nothing very special about any claiming year between 62 and 70 for singles. Every month a single person waits to claim, his benefits will rise. If someone waits until 70, benefits will be 76% higher than they would have been if claimed at 62. The best age for claiming will vary depending on life expectancy, but it turns out that because of the peculiar structure of benefit increases, it is not advantageous to claim at 66; no matter what the life expectancy. The same can be said for 63.

The situation is completely different for married couples and divorcées. Age 66 is a crucial for them, because important strategies open up when full retirement age is attained.

For instance, when someone reaches full retirement age, 66, they can first take spousal benefits and later take their own benefit. This is an enormous advantage since the spousal benefit acts like a subsidy for waiting and each year someone delays claiming beyond full retirement age their own retirement benefit increases by 8%.

For example if the husband has a retirement benefit of $2,000, the wife can get a spousal benefit while she waits to claim her own benefit. She will receive $1,000 per month (half her husband's benefit) or $48,000 over four years if she waits until 70, and her own benefit is climbing the entire time.

If, on the other hand, the wife takes spousal benefits before full retirement age, 66, then she is “deemed” to have taken her own retirement benefit at the same time. Having effectively taken her own retirement benefit at this point in time, she cannot turn around and claim a higher benefit later. Once she turns 66, Social Security no longer deems that taking a spousal benefit also means claiming your own benefit. So 66 is a crucial marker when a couple thinks about their best claiming strategy.

The optimal strategy for a couple will vary depending on such factors as life expectancies, differences in retirement benefits and the ages of the two members of the couple.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.